DC ready to ramp up its stormwater trading program

If builders can’t retain runoff, they can buy credits from projects that exceed requirements

An unusual strategy designed to slash the amount of stormwater pouring off the District of Columbia’s buildings and pavement into its streams and rivers is bearing fruit and might be poised for major growth.

Since 2014, newly planned large developments in the nation’s capital have been required to contain the first 1.2 inches of rain that falls on their property in a storm. Most of the projects built since then have met that requirement; some have not.

Using a market-oriented provision in the District’s stormwater control regulation, seven developments have met the runoff-capture requirement by purchasing “stormwater retention credits” given for rain gardens and other rain-soaking projects done elsewhere in the city, according to Mathew Espie, an environmental protection specialist in the District Department of Energy and Environment.

About 25 other developments are on course, once their construction is complete, to use runoff controls at other locations, said Jeff Seltzer, associate director of stormwater management at the DOEE. Developers still have to meet 50 percent of their stormwater retention requirement onsite before they can resort to buying credits

Although the District unveiled its stormwater trading program three years ago, until recently, there had been only a couple of buyers for a small number of retention credits. Seltzer said the delay simply reflects the time it has taken for developments to move from the drawing board to completion. The runoff prevention requirement doesn’t take effect until construction is finished, he explained.

The District has a major challenge to curtail the stormwater polluting its rivers and streams. With pavement and buildings covering 43 percent of the city’s land, a single 1.2-inch rainstorm can produce about 525 million gallons of runoff, according to the DOEE.

In about a third of the city, that runoff flows into a combined sanitary-stormwater sewer system, which is prone to overflow into local waters with even a modest rain. Elsewhere in the capital, rainfall mixed with pet waste, oil and other pollution flows into storm drains and out into waterways, also without treatment.

Recognizing that some building projects in the densely developed District may have trouble finding enough open land to install sufficient rain gardens and other stormwater controls to meet the new runoff requirement, the trading program allows developers to purchase retention credits from other properties.

It also allows for private “aggregators” — nonprofit groups or even for-profit businesses –— to play the role of matchmaker, lining up buyers and sellers of the credits.

Private investment did not materialize until March, when Prudential Financial Inc. announced that it would spend up to $1.7 million installing green roofs, permeable pavement and other runoff-control measures in the District to generate marketable stormwater retention credits. An executive with the New Jersey-based financial services company said it was its first such venture into green infrastructure.

District officials recently pledged to spend almost $13 million in public funds as a “buyer of last resort” for the credits, in case demand for the credits falls short.

That pledge is designed to build confidence in the market, Seltzer said. He added that a soon-to-be-named, not-for-profit organization will partially run the “buyer of last resort program.”

While the DOEE will set a fixed price for trades and have to approve each one, money transactions will be handled through the District’s not-for-profit concessionaire, because of the city government’s cumbersome procurement rules, Espie explained.

The owners of property where retention credits are generated receive discounts on their stormwater fees. And, for deals arranged by an aggregator, the landowners may also get a share of the revenue from sales of the credits on their property, where contracts provide for it.

The DOEE will repeatedly inspect sites generating stormwater credits to assure that they are retaining runoff properly. Those inspections will occur during construction and upon completion, and then every three years afterward, Seltzer said.

“This is a brilliant program for reducing stormwater pollution,” said Doug Siglin, executive director of the Anacostia Waterfront Trust. “If it works, it could spread across the Chesapeake Bay watershed and the nation.”

By tapping private capital, the program has the potential to transform the way runoff controls are financed across the United States, said Chris French, director of the stormwater program at the Water Environment Federation, an organization of engineers and other water-quality professionals, many of them in the wastewater industry.

French said he was not surprised it took nearly three years before the District saw any significant private investment in marketable stormwater retention credits. The approach is new in the United States, he said, and investors are leery of “jumping in when there is that degree of innovation. They wait for trust in the program to develop.”

The trading program has attracted players large and small.

The Anacostia Waterfront Trust, a nonprofit working to restore the District’s degraded “forgotten river,” is poised to act as credit aggregator with individual landowners.

The consortium’s focus on long-term property owners is ideal because they have a vested interest in the city’s future and “can be counted on to maintain the stormwater retention installations for a very long time,” Foster said.

The partners plan to invest in the construction and maintenance of stormwater projects, as well as act as a credit aggregator.

The three entities have formed District Stormwater LLC. Its staff is now making presentations to colleges, churches and other long-term property owners about the potential benefits of generating and selling stormwater retention credits, said Kahlil Kettering, TNC’s urban conservation director for the District of Columbia and Maryland.

NatureVest, a TNC unit that seeks to work with big investors on conservation efforts, is the group’s official partner in District Stormwater LLC.

Craig Holland, the NatureVest product developer, said the venture can offer landowners technical and legal help as well as financing, including assuming all the financial risk, should something go wrong.

District Stormwater is focused on developing stormwater retention projects only in the Anacostia River watershed, Kettering said. The residents and businesses there are less affluent than the rest of the District, and the river is still badly polluted from industries that once lined its banks.

District officials say they see potential in the program to yield economic and quality of life benefits for disadvantaged areas of the city like Anacostia.

“Environmental justice is one of the goals,” Brian VanWye, DOEE’s stormwater control program director, said.

“We hope in the future to offer more incentives in particular areas,” Seltzer said. “There are certain ways we can put our fingers on the scale but we’re not there yet,” he added.

The District’s stormwater trading system can help developers meet rigorous runoff control requirements, but it also allows developers to make some money by generating credits themselves.

A few miles east of the U.S. Capitol and just before gritty Interstate 295, one developer has restored an urban park as part of a 14-acre, mixed-use project called ParksideDC.

The developer, City Interests, is transforming the land between the throughway and an existing residential neighborhood into a retail/office development. The pastoral park includes a variety of runoff-curbing features such as rain gardens, bioswales and porous pavements — a lot of green infrastructure. Any remaining runoff eventually enters the city’s storm sewer system and flows into the Anacostia River untreated.

But the extensive amount of green infrastructure in the park will allow the developer to more than meet the District’s stormwater retention requirements for that site, Van Wye said. City Interests will have stormwater retention credits to spare.

The company could sell them to another developer in downtown DC, but a City Interests executive said the company will keep the credits — and use them to develop another site in the Anacostia watershed.

Another developer, Lenkin Company Management is generating credits by installing enough runoff control measures to retain more than the minimum 1.2 inches of rain, and plans to sell the excess to other developers, said Greg DeHaven, the company’s energy systems manager.

Lenkin is looking to market 2,140 stormwater retention credits to a developer, DeHaven said. If that deal is completed, he added, it would more than double the number of credits the company has sold so far.

The company sees two upsides to the trading program, DeHaven said. The revenue from generating and selling stormwater retention credits is relatively small change, he said, but putting more green infrastructure in a property has yielded higher rents. Commercial and residential lessees alike will pay significantly more for space in a LEED-certified green building, he noted, and even more if the building has features like a vegetated roof.

One environmental group, though, pans the District program: Food & Water Watch, which is opposed to all kinds of pollution “trading.”

“This is a shift in accountability. It’s a conscious shift to a system of paying to pollute,” said Scott Edwards, co-director of the group’s Food & Water Justice project.

“Letting a developer meet only 50 percent of his or her stormwater retention requirement by purchasing credits is a mistake,” said the project’s other co-director, Michele Merkel. She said the Clean Water Act worked very well for decades by requiring industries and communities to reduce their pollution directly. There is no reason to deviate from that for stormwater runoff, she said.

The Clean Water Act authorizes — but does not require — states and the District to apply the same standards for stormwater runoff, Edwards acknowledged. But what the District is doing is “not in the spirit of the Clean Water Act,” he said.

Foster, the head of the Anacostia Watershed Society, said regulation alone is not enough to deal with urban stormwater problems. “You can’t just beat them with a stick,” he said. “You have to put a carrot out there.”

Jeff Day covered government policy developments for more than 20 years at Bloomberg BNA, including Chesapeake Bay restoration efforts since 2009. .(JavaScript must be enabled to view this email address).

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Marchant Wentworth on September 29, 2016:

Food and Water Watch is just plain in their wholesale, one size fits all opposition to trading. There are circumstances where trading makes good economic and ecological sense and stormwater control is one of them. That is because what is important is the net amount of stormwater being discharged through a particular sewershed or set of sewersheds. For example, if the goal is to reduce the impact of stormwater volume on the Anacostia, getting developers to get it done in the most economic way can only be a good thing. Food and Water's myopic and rigid view virtually guarantees less cleanup occurs. Certainly there are instances where pollution trading, of toxics for example, subjects communities to unacceptable risks. This is not one of those instances.

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